Tax Refund Loan: Should You Get One in Advance?

Expecting money back from the IRS this tax season and you’re looking for a fast way to get cash, a tax refund loan could work for you. While a tax refund advance may be inexpensive if your tax forms are simple, most people won’t actually be able to get one for free.

What is a Tax Refund Loan?

A tax refund loan is officially known as a refund anticipation loan (RAL). It is a loan that a lender makes based on the amount of your federal income tax refund. Lenders are often small financial institutions.

This may require a little research on your part to make sure the lender is reputable. Many tax filing services will also offer you a tax refund loan after you file with their service.

Tax refund loans typically only last a couple of weeks, long enough for the IRS to process your tax refund.

The loan that you receive from a lender will have the value of your anticipated refund minus any fees or interest charges.

How Do Tax Refund Loans Work?

You submit an application for the refund loan the moment you file your return with a tax preparer.

Most tax preparers partner with a bank that lends the money. For instance, Republic Bank & Trust Company issues tax refund loans for Jackson Hewitt.

Tax refund loans don’t normally have the same credit score requirements as unsecured loans. However, the bank may review an applicant’s credit profile without affecting their credit score.

Qualification can often rely on the amount of your expected refund. Tax refund advance loans need identity verification and a review of your tax return inputs and history.

Once approved, you can typically access the loan amount quickly in a checking account provided by the tax preparer, on a prepaid card, which could come with restrictions and fees of its own.

The tax preparer will automatically deduct the loan amount, plus any interest, from your refund when the IRS disburses it.

Pros and Cons of Tax Refund Loans

Pros

• There’s often no hard credit pull. 
• Most loans are interest-free.
• Funding is fast.

Cons

• You will probably have to pay a tax filing fee.
• You may be mandated to open an account or debit card.
• The loan is deducted from your IRS tax refund.

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Where to Get a Tax Refund Loan

These are trusted alternative options to use while aiming to secure your tax refund loan.

1. H&R Block Refund Advance

H&R Block also presents two advances. The Emerald Advance loan is available through December 2024.

Unlike zero-interest tax refund loans, the Emerald Advance functions like a traditional loan with an APR of 35.9%.

You can utilize your tax refund to repay the loan or repay by debit card, bank account transfer, or check. The loan must be repaid by March 31, 2024.

H&R Block’s Refund Advance loan is obtainable starting in January 2024.

The Refund Advance has no interest or fees, but it demands filing your taxes with H&R Block. Pathward, N.A., allocates the Refund Advance loan.

2. Jackson Hewitt Advance Loan

Jackson Hewitt delivers two refund advances. The Early Refund Advance loan, which holds a 35.53% annual percentage rate, is obtainable starting in December 2024.

Meanwhile, the No Fee Refund Advance loan, with a 0% APR, is available in January 2024. Republic Bank & Trust Company allocates both loans.

3. Intuit Turbo Tax Advance Loan

Intuit TurboTax’s zero-interest Refund Advance loan is financed by First Century Bank. 

Unlike other tax preparers, TurboTax permits customers to apply online. If endorsed, borrowers must open a Credit Karma Money checking account to access the loan.

How Much Does a Tax Refund Loan Cost?

Tax refund advances often don’t come with interest or financing fees. But while you may not need to pay anything to get an advance, you will still need to pay to have your taxes filed through the company.

Expect to pay between $50 and $500 when filing your taxes in a store — though it can go much higher.

The one exception is for those filing Form 1040EZ, the simplest of tax filings, which sometimes doesn’t require an in-store fee. Call ahead to make sure this option is available to you.

Who is Eligible for a Tax Refund Loan?

It varies from provider to provider, though many have standard eligibility requirements that include factors such as your creditworthiness, income, and past financial history.

However, the two most important factors to qualify are:

1. Ensure your taxes are prepared in person. You can only obtain a tax refund advance from the company that’s also doing your taxes, and most require you to visit a tax adviser in person.

2. Know how much you’re gaining. You can typically look up your estimated refund when applying via one of these services.

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Alternatives to Tax Refund Loans

The fees for filing your taxes in person can be expensive. If your refund isn’t big enough to justify the costs, consider using a free online service and opting for one of these financing options instead:

1. Pay Advance App

Depending on your income, you may be able to get an advance through a pay advance app.

While you may need to pay a fee, it is typically much less expensive than paying the tax filing fee if you have a complicated return.

2. Personal Loan

If you have one big expense you’re hoping to cover with your tax return, it could be worth it to take out a personal loan for $5,000.

Look for a loan that doesn’t come with prepayment fees so that you can pay it off as soon as you get your refund.

3. Credit Card

Use your credit card to cover day-to-day expenses and then apply your refund to pay off as much of your card’s balance as you can.

It could be a bit more expensive than a personal loan, but it might be cheaper than a tax refund loan.

4. Direct Deposit for Your Refund

You won’t get your refund months in advance.

However, you can get your tax refund a bit faster if you ask for a direct deposit instead of a physical check when filing your taxes.

5. Short-Term Loan

You should be aware that Payday loans come with more risk.

However, if you can afford to make payments on time and can’t qualify for another option, a short-term loan that you pay back within a few weeks or months might be able to help you during an emergency.

If you rely on your tax refund to cover personal expenses, getting a tax refund loan could be a safer alternative to other types of short-term financing. However, bear in mind that tax refund loans aren’t free.

If you weren’t planning on having your taxes filed by an in-store professional, you could be shelling out an additional $150 to $300 for this service depending on the complexity of your taxes.